Vendors will have to verify identities and report suspicious transactions
By Mok Fei Fei and Yasmine Yahya, The Straits Times, 14 Mar 2014
SINGAPORE will become one of the first countries in the world to set up rules on vendors and exchanges involving virtual currencies like bitcoin.
By Mok Fei Fei and Yasmine Yahya, The Straits Times, 14 Mar 2014
The Monetary Authority of Singapore (MAS) said yesterday that operators of bitcoin exchanges and currency-conversion vending machines will have to verify customer identities and report suspicious transactions.
These requirements are similar to those imposed on money changers and remittance businesses that undertake cash transactions.
Shops that accept bitcoins for goods and services will not be subject to the regulations for now.
The rising popularity of digital currencies has been a source of concern for financial regulators worldwide. MAS is introducing the regulations on intermediaries as the anonymous nature of virtual currencies makes them "particularly vulnerable to money-laundering and terrorist financing risks".
But it is not regulating virtual currencies as such or their soundness, as they are not considered as securities or legal tender.
A public consultation will be held before the proposed regulations are brought in.
Singapore is the second nation to come up with rules for intermediaries of virtual currencies. The United States has requirements like registering with authorities and keeping transaction records.
The new rules follow the collapse of Japanese exchange operator Mt. Gox last month after losing bitcoins worth more than US$500 million (S$630 million).
Last year, US authorities also busted online platforms Liberty Reserve and Silk Road for allegedly allowing virtual currency to be used for crimes like drug-dealing.
The rules also come amid a proliferation of machines for exchanging real and digital currencies.
Industry players, who say there are about eight bitcoin exchanges and vending machine operators here, generally welcomed the rules, but had some concerns.
Mr Jarrod Luo, co-founder of vending machine operator Tembusu Terminals, which has a machine at Boat Quay, said: "Such clarity on the regulations can only be good for doing business."
Mr Jarrod Luo, co-founder of vending machine operator Tembusu Terminals, which has a machine at Boat Quay, said: "Such clarity on the regulations can only be good for doing business."
But he expects to incur costs to upgrade the machine. Tembusu also plans to install seven to 10 machines over the next month.
Singapore's first machine that can accept bitcoin and return cash will open at Bartini Kitchen in Boon Tat Street on Monday. Coin Republic founder David Moskowitz, who is setting it up with Bitcoiniacs, said: "We've done a good job of self-regulating. We've had no problems of money-laundering or any of that nonsense."
Numoni chief executive Norma Sit, whose firm has four bitcoin vending machines here, added: "If the regulation is as tight as that under the Money-Changing and Remittance Business Act, then the cost... involved would eliminate the business case for vending virtual currencies."
Virtual money comes with real risk
National financial education scheme MoneySense issues this reality check on virtual currencies
The Sunday Times, 16 Mar 2014
National financial education scheme MoneySense issues this reality check on virtual currencies
The Sunday Times, 16 Mar 2014
Virtual currencies like bitcoins have been making a major impact in the real world, with more businesses accepting it as payment for their goods and services locally and globally.
Before you decide whether to dip your toes into the world of virtual currencies or not, here's some consumer advice from national financial education scheme MoneySense.
Q: What are virtual currencies and their purposes?
Virtual currencies ("VCs") are non-physical stores of value that can be exchanged for goods and services at places that accept them.
For instance, one may be able to use VCs as payment at online stores and even some physical food and beverage outlets here like Cad Cafe and Hospoda.
VCs can typically be transferred electronically from one user to another. They are usually not denominated in fiat currency, such as the Singapore dollar or US dollar.
Q: Are virtual currencies recognised by MAS?
VCs, including those from Liberty Reserve and Bitcoin, are not legal tender in Singapore.
Under the Currency Act, the Monetary Authority of Singapore (MAS) has the sole right to issue currency notes and coins in Singapore.
Only notes and coins issued by MAS are legal tender in Singapore.
Further, VCs are not considered as securities under the Securities and Futures Act (SFA).
Q: If MAS does not regulate virtual currencies, what is it planning to regulate?
The latest news, announced last Thursday, is that the MAS plans to regulate intermediaries.
The intermediaries refer to the middlemen who buy, sell or facilitate the exchange of virtual currencies for real currencies.
They will be required to verify the identities of their customers and report suspicious transactions to the Suspicious Transaction Reporting Office (STRO). STRO is a unit in the Commercial Affairs Department.
A public consultation will be held before the rules are implemented, a process that could take up to 12 months.
Q: What are the types of virtual currency schemes?
There are currently two broad types of VC schemes - Centralised and Decentralised.
A centralised VC scheme is issued by an organisation (or "VC operator"), that is in charge of recording transactions made with the VCs.
These VCs may be bought with fiat currency at a fixed price specified by the VC operator.
Examples of such centralised VC schemes are Liberty Reserve, WebMoney and Perfect Money.
In contrast, a decentralised VC scheme does not have a VC operator and is typically maintained by a community of VC users.
The price of decentralised VCs is typically not fixed and fluctuates according to market forces.
Bitcoin, Litecoin and Namecoin are some examples of decentralised VC schemes.
Q: What are the risks involved in using virtual currencies?
Regardless of the type of VC scheme, consumers need to be aware of the risks of participating in such schemes.
For instance, customers of Liberty Reserve suffered monetary losses when the scheme was shut down by the US authorities due to its involvement in money laundering activities.
Consumers may not be able to obtain a refund of their monies should a VC scheme cease to operate. Consumers should also take note that the value of decentralised VC schemes could fluctuate unpredictably within a short period of time.
For example, the value of Bitcoin reportedly fell more than 50 per cent in a matter of hours in early April last year.
Q: What should consumers take note of?
Consumers should be cautious when dealing with VCs, given the risks highlighted above.
Moreover, if a consumer chooses to participate in schemes that are not regulated by MAS, he will not have the protection afforded under the regulatory framework administered by MAS.
If he has a complaint against an unregulated entity, he will also not be able to approach the Financial Industry Disputes Resolution Centre for assistance.
If the VC operator is based overseas, it could be even harder for the consumer to seek recourse.
Consumers can look up the Financial Institutions Directory to check if the firm they intend to deal with is regulated by MAS, and the specific regulated activities it is authorised to conduct in Singapore.
Bitcoins not regulated here, warns MAS
Warning comes even as suppliers plan to roll out more vending machines
By Yasmine Yahya, The Straits Times, 4 Mar 2014
THE Monetary Authority of Singapore (MAS) has warned consumers to be cautious about buying and using bitcoins as they are not regulated here.
Warning comes even as suppliers plan to roll out more vending machines
By Yasmine Yahya, The Straits Times, 4 Mar 2014
THE Monetary Authority of Singapore (MAS) has warned consumers to be cautious about buying and using bitcoins as they are not regulated here.
The warning comes even as the bitcoin vending machine suppliers already have plans to roll out many more islandwide.
The MAS told The Straits Times in a reply that it does not regulate bitcoin, including its purchase, sale or use, whether online or via other means such as vending machines.
"Virtual currencies, including bitcoin, are not legal tender and are not recognised by the MAS as an official medium of exchange or as a form of securities," it added.
The MAS also warned that consumers and merchants who use virtual currencies such as bitcoins should be aware of their risks. For example, the value of bitcoins can fluctuate greatly within a short period of time and so consumers and businesses might suffer monetary losses as a result of this volatility.
They may also be unable to obtain a refund of their money should such a scheme cease to operate and may have no legal recourse as bitcoins are not issued by any identifiable organisation.
With Singapore having six such machines so far, the number could soon double.
As the machines accept only cash for bitcoins and not the other way around, the MAS refers to them as vending machines rather than ATMs.
The three bitcoin vending machine suppliers, Numoni, Bitcoin Exchange and Tembusu Terminals, say that while the number of actual transactions has not been very high, a lot of merchants have requested that they place a bitcoin machine in their shops.
The three bitcoin vending machine suppliers, Numoni, Bitcoin Exchange and Tembusu Terminals, say that while the number of actual transactions has not been very high, a lot of merchants have requested that they place a bitcoin machine in their shops.
These include pubs, sellers of computer and mobile phone accessories and computer game shops, said Numoni chief executive Norma Sit. Numoni launched four bitcoin vending machines in Singapore last week - at Sim Lim Square, Singapore Management University, Lucky Plaza and Funan DigitaLife Mall.
"We have 70 machines in Singapore that sell prepaid airtime for mobile phones and we are now considering converting 15 to 20 of these to also sell bitcoins.
"Some of the merchants that host our prepaid airtime machines are asking us to convert these into bitcoin machines because they know this is the way of the future and they want to get in on it early so they can start learning."
Bitcoin Exchange said response to its machine at Citylink Mall exceeded its expectations, with a queue forming when the machine went live on Friday.
"We originally planned to have four machines in Singapore by the end of the year, but we may revise this number upwards," said director Zann Kwan.
Tembusu Terminals, which has a machine at the Spiffy Dapper pub at Boat Quay, has plans to launch several more machines over the coming weeks.
The bitcoin vending machine suppliers told The Straits Times they have been updating MAS about their activities and that they would make sure to follow guidelines set out by MAS.
They are treading cautiously and coming up with ways to make bitcoin transactions safer.
Numoni, for example, will not enable their machines to accept bitcoins in exchange for cash as this is riskier than selling bitcoins.
Tembusu Terminals said it is working on a "know-your-customer" feature for its machines.
Taking the bitcoin bull by its horns
Singapore’s move to introduce new rules around virtual currencies such as the bitcoin has put it ahead of the pack. Now it should try to stay in the lead.
By Melissa Tan, The Straits Times, 18 Mar 2014
Singapore’s move to introduce new rules around virtual currencies such as the bitcoin has put it ahead of the pack. Now it should try to stay in the lead.
By Melissa Tan, The Straits Times, 18 Mar 2014
SINGAPORE’S regulator last week proposed new rules on exchanges and vendors of virtual currencies, becoming one of the first in the world to do so.
The planned rules will apply to bitcoin, the virtual currency du jour. It will also apply to intermediaries of all virtual currencies, the Monetary Authority of Singapore (MAS) said.
This will affect businesses that buy and sell virtual currencies or that let people exchange virtual currencies, such as the bitcoin, for legal tender like Singapore dollars. These firms will now have to verify the identities of their customers and report suspicious transactions to the police.
The MAS said the move was a pre-emptive one, aimed at thwarting potential money laundering and terrorist financing. Since the bitcoin allows people to transfer digital money between one another anonymously, it is ripe for exploitation for these financing crimes. MAS will put up its proposals for public consultation soon, and plans to turn them into law within the next 12 months.
The move to impose some kind of regulatory structure is a good first step for Singapore to maintain its edge as a financial centre in the digital age. But how it proceeds will determine whether the Republic stays in the lead.
Understanding bitcoin
FIRST, some background on the bitcoin, which is a kind of digital cash that people can use to buy and sell things.
Bitcoins can be sent anonymously at low cost over the Internet, without using a middleman such as a bank, which may charge high fees. It has not yet achieved mainstream acceptance, partly due to the relative novelty of the concept and the volatility of bitcoin prices.
The technology for the bitcoin surfaced in 2009. Bitcoins are created – “mined”, in industry lingo – by a vast network of computers linked via the Internet.
Unlike fiat currencies that are controlled by central banks and backed by their reserves, there is no one authority behind the bitcoin. Instead, “miners” earn bitcoins by carrying out complex mathematical calculations on sophisticated computers. The code for bitcoin caps the number of bitcoins in existence at 21 million.
The value of a bitcoin is determined entirely by what people are willing to pay for it and has fluctuated wildly since its inception. The price of one bitcoin spiked to US$1,242 (S$1,572) last November – making it briefly pricier than an ounce of gold – before dropping to around US$630 as of last week.
Other virtual currencies include litecoin and linden dollars, but bitcoin is by far the most widely used. It is accepted at online retailers such as Overstock.com, Zynga and OkCupid, and even at the University of Cumbria in Britain, which now takes bitcoins as payment for tuition fees. Some experts predict they will become commonplace in two years.
Singapore’s tech-savvy entrepreneur community has embraced the technology, with local firms setting up some of Asia’s first bitcoin machines here last month. Singaporeans can now buy bitcoins off the street from at least six vending machines. A machine that pays cash in return for bitcoins is expected to be launched this month.
A recent series of recent high-profile meltdowns has thrown the technology’s jagged edges into sharp relief. Last month, the world’s biggest bitcoin exchange, MtGox, filed for bankruptcy after claiming hackers had stolen a staggering US$480 million worth of the bitcoins it stored. A Canadian bitcoin bank called Flexcoin shuttered this month, saying it had lost about US$600,000 worth to hackers.
Rules of the game
INCIDENTS such as these have jolted regulators into figuring out an approach to bitcoins and other virtual currencies.
But because virtual currencies are a fairly new phenomenon, they are still shrouded in uncertainty. The main problem for regulators is pinning down what the bitcoin really is because this affects which rules apply.
Should it be treated as a currency, since it can be used as a medium of exchange? Or is it best regarded as a commodity, given its speculative and volatile nature?
Industry players say the lack of a central authority backing the bitcoin means it cannot be regulated like a real currency.
Mr Greg Unsworth, who heads technology, media and telecommunications at Pricewaterhouse- Coopers, suggests that the bitcoin be regulated as a “hybrid” since it has attributes of both a currency and a commodity.
“Right now it’s being used more as an investment and speculation... But as it’s used more, it could start to look more like (legal) tender. Any regulation should address its different roles.”
Another option is to ban transactions in bitcoin altogether.
Japan has declared that the bitcoin is not a currency and banks in Japan cannot open bitcoin deposit accounts. China’s central bank has barred financial institutions from handling bitcoin transactions, while Taiwan has banned bitcoin ATMs.
In contrast, New York’s top financial services regulator asked prospective virtual currency exchange operators to submit formal applications last week, as a first step towards regulation. It plans to put up proposed rules by the end of June.
The United States’ commodities derivatives watchdog also said it was studying whether the bitcoin fell under its purview.
Ahead of the pack
SINGAPORE could move ahead of New York if it puts up proposed rules for consultation before New York does. Its approach is highly targeted, in that it is sharply focused on cutting the risks of virtual currencies being used to filter money for terrorism and money laundering activities.
This is why it targets exchanges, which are companies where you can buy and sell virtual currencies. A money- laundering outfit could for example use ill-gotten gains to purchase bitcoins, and then sell them again, for legitimate money.
MAS wants to make it mandatory for exchanges to verify the identities of people who use their services. The Inland Revenue Authority of Singapore also levies goods and services tax (GST) on the sale of bitcoins, which it treats as a service for tax purposes.
But those interested in transacting in bitcoins must understand that MAS rules do not offer them any consumer protection. MAS has repeatedly said it will not recognise virtual currencies as legal tender or as securities. It warns users of the “significant risks associated with virtual currency transactions”. MAS has made clear that its new regulations do not extend to the “safety and soundness” of virtual currency intermediaries.
This means consumers use bitcoins at their own risk. The value of bitcoins is not regulated and could plunge to a fraction of what you paid for it. And if you spend thousands of dollars buying bitcoins from a company and it goes bust, chances are you will get neither bitcoins nor the money back.
Some experts such as lawyerturned- tech entrepreneur Aidil Zulkifli think MAS’ proposed rules strike the right note in targeting infrastructure providers such as bitcoin exchanges as these promote liquidity and movement in the market.
Bitcoin entrepreneurs themselves are divided on the importance of regulation.
Ms Norma Sit, who runs bitcoin vending machine provider Numoni, said her company already self-regulates, for instance, by capping a customer’s daily and monthly transactions.
“These checks are similar to what payment systems might have to spot irregularities and unusual activities,” Ms Sit said.
Mr Luv Khemani, who runs an exchange called FYB-SG, fears regulation will “drive up costs for me, end users and taxpayers for no benefit to anyone”.
Onerous rules could also drive firms offshore or underground, and raise “artificial barriers to entry, leading to cartels and stagnation in innovation”, he said.
Mr David Moskowitz, who runs Singapore-based bitcoin broker Coin Republic, said bitcoin companies here already provide strong security as a way of differentiating themselves from rivals.
“A free market is able to handle the changing bitcoin landscape better than regulations can,” he argues. “Financial privacy is an important right... Simply because someone wants to be able to freely move money from one place to another, we should not put them into the same category as drug dealers or terrorists.”
Some bitcoin bosses favour regulation. Ms Zann Kwan, director of bitcoin vending machine provider Bitcoin Exchange, said light rules would likely widen the acceptance of bitcoins, while hasty, heavy regulation could “erode the momentum of this exciting trend”.
“Singapore could potentially play a big role on the global stage” if it were to introduce a sound regulatory framework, she said.
But most experts agree on one thing: Regulating bitcoin exchanges to reduce the risk of them being exploited for money-laundering and terrorism- financing activities is just the first step.
As bitcoin usage spreads, there will be a need to extend regulations to cover consumer use, said Mr Jonathan Kok, a partner at law firm RHTLaw Taylor Wessing.
MAS could have chosen to ban bitcoin use outright or left it to market forces to decide its fate. But as a nimble tech and finance hub, it chose to take the bitcoin bull by its horns.
Its move to introduce a regulatory framework moves it ahead of the pack in both innovation and regulation. Continuing to keep an open mind about virtual currencies while remaining vigilant about systemic risks to the financial system would help it stay that way.
But as Mr Rajesh Sreenivasan, a technology lawyer at Rajah and Tann, warned, rules must be flexible and adapt to fast-changing tech realities.
“It’s still early days. Exchanges seem to be the hot thing today, but they could become redundant in future. The bitcoin could be the flavour today but not tomorrow, and we need to be ready for that.”
“It’s still early days. Exchanges seem to be the hot thing today, but they could become redundant in future. The bitcoin could be the flavour today but not tomorrow, and we need to be ready for that.”
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